Study finds over half billion in unused loans for rural telcos


WASHINGTON-As Congress mulls tax breaks and legislative changes to bring advanced telecommunications to rural Americans who lawmakers fear will be left behind in the Information Age, a new report finds many rural telcos are financially strong enough to borrow from commercial sources other than the federal government and that more than a half billion dollars in loans to rural telcos have gone unused during the past five years.

Among other things, the study identified $1.8 billion in government loans to more than 400 financially fit rural telcos that could have obtained financing from other sources or could be graduated to other credit sources. It also found $602 million in unused loans to rural telcos for the past five years.

“Unused telephone program loan funds should be periodically deobligated because unused funds that are not longer needed result in an overstatement of loan obligations on the agency’s financial statement,” said the Agriculture Department’s inspector general.

The report paints an unflattering picture of the Rural Utilities Service’s loan program.

“RUS has done very little to encourage and assist financially strong borrowers to satisfy their credit needs from their own financial organizations and other sources,” the report stated.

The IG report added, “If RUS submitted appropriation requests based on anticipated financial needs of borrowers who need RUS assistance, the agency could not only reduce spending millions of tax dollars for telephone companies who do not need government assistance, but also develop a needs-based budget request.”

In 1994, Congress created the RUS as a successor to the Rural Electrification Administration and gave it the job of overseeing electric and telephone loan programs. But the genesis of guaranteed government loans to rural utilities dates back to 1936. Today, RUS is a unit of the Agriculture Department.

Christopher McLean, acting administrator of the RUS, said the IG’s recommendations are “in conflict with the clear intent of the United States Congress that rural telecommunications subscribers be afforded the same economic, educational and health care opportunities as urban and suburban residents.”

The National Telephone Cooperative Association called the report misleading. “It neglects the fact that for every $1 in RUS loan authority, an additional $4.50 in private sector investment is leveraged,” said NCTA Chief Executive Officer Michael Brunner in a letter to lawmakers.

The findings, released last month, come as lawmakers fight for bragging rights to champion one of Congress’ sacred cows: rural telcos.

Indeed, Sens. Jay Rockefeller (D-W.Va.) and Olympia Snowe (R-Maine) this week are expected to introduce legislation to give a tax credit for expanding broadband telecommunications in rural areas.

“We simply cannot afford to have a nation divided between technological haves and have nots,” said Snowe.

Rockefeller said he expects the Rural Telecommunications Modernization Act will be broadly supported “because it is technology neutral, benefits incumbent companies as well as competitors, and most importantly, directly addresses the high cost of investing in rural areas.”

Snowe and Rockefeller authored the 1996 telecom act provision for discounted Internet links to schools and libraries that has become controversial in its implementation.

Without mentioning the bill by name, House telecommunications subcommittee Chairman Billy Tauzin (R-La.) blasted the tax-break approach in the Snow-Rockefeller rural telco legislation. “My question is, do we really want to go down that route … It makes no sense at all,” said Tauzin.

Tauzin and Rep. John Dingell (D-Mich.), ranking minority member of the House Commerce Committee, are pushing a bill to deregulate Internet and data services in a way that critics say enables regional Bell telephone companies to bypass long distance restrictions.

The wireless industry has tried to capitalize on the rural telco issue by fighting to secure eligibility status for carriers so they can tap into universal service funds and offer service to rural consumers.

In addition to Snowe and Rockefeller, other members of the Senate Commerce Committee are strong rural telco advocates. In fact, several of them pressed FCC member Susan Ness to move more aggressively on rural policies during her renomination hearing last week.

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